Lecture4
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Management Accounting
• Last week • Activity-based Costing (Ch. 5) • Absorption costing and Variable costing (Ch.17)
Reasons to allocate costs
External reporting / tax reporting Inventory valuation and income determination
Third-party reimbursements Decision making and control Separate bills? Beamer example
Organizational reasons for cost allocations Cost allocations are a tax system Change the mix of factor inputs: (less of the taxed input, more of the untaxed input)
Compensate for externalities Positive externalities (data in a POS; software add-in on other software products)
Negative externalities (purchasing substandard raw materials; finance department wants to use Macintosh)
Enhance cooperation
Cost allocation methods
1. Simultaneous equation Reciprocal method
2. Specified order of closing Step down allocation
3. Direct method
Joint cost, what’s it all about?
mad cow
processin g
A
processin g
B
Material processin g
Labor Overhead
C Joint Costs
Separable Costs
Split-off point
Allocation methods
• Physical output – kg, meters, liters
• Relative Sales value – Market value at split-off point
• Sales revenue – Selling price x items sold
• Gross margin – Sales revenue less constant gross margin
• Net sales revenue – Estimated sales revenue -/- cost incurred after joint process
Absorption costing Cost Manufacturing cost
Material
Labor
Work in progress stock
Non-manufacturing cost
Overhead
Finished goods stock
Profit & Loss Account
Variable costing Cost Manufacturing cost
Material
Labor
Non-manufacturing cost
Overhead
Variable Overhead
Work in progress stock
Fixed Overhead
Finished goods stock
Profit & Loss Account
Example (1) Units Opening inventory Production Selling Closing inventory
Selling price Material per unit Material unit price Fixed cost Denominator Product cost VC Product cost AC
January February 1.000 1.000 1.000 900 100
100 2 10 50.000 1.000
€ kg € € units
20 70
€/unit €/unit
March 100 1.000 1.100 -
April 1.000 1.000 -
May 1.200 800 400
June 400 800 1.200 -
Example (2) 1.000*€100
Variable costing Sales revenue Cost of Goods Sold Opening stock Variable cost of products manufactured Cost of Goods available for sale Closing stock Variable cost of goods sold Contribution margin Fixed period cost Operating profit
January February 100.000 90.000
April 100.000
May 80.000
June 120.000
0 20.000 20.000 0 20.000 80.000
0 20.000 20.000 2.000 18.000 72.000
2.000 20.000 22.000 0 22.000 88.000
0 20.000 20.000 0 20.000 80.000
0 24.000 24.000 8.000 16.000 64.000
8.000 16.000 24.000 0 24.000 96.000
50.000 30.000
50.000 22.000
50.000 38.000
50.000 30.000
50.000 14.000
50.000 46.000
1.000*2 kg*€20 400 units * € 20 €100.000-/- € 80.000
March 110.000
Example (3) 1.000*€100 € 50.000-/-€ 60.000
Absorption costing Sales revenue Cost of Goods Sold Opening stock Variable cost of products manufactured Fixed cost of products manufactured Cost of Goods available for sale Closing stock Total cost of goods sold Sales profit Adjustment for manufacturing variances Operating profit
January February 100.000 90.000
March 110.000
April 100.000
May 80.000
June 120.000
0 20.000 50.000 70.000 0 70.000 30.000
0 20.000 50.000 70.000 7.000 63.000 27.000
7.000 20.000 50.000 77.000 0 77.000 33.000
0 20.000 50.000 70.000 0 70.000 30.000
0 24.000 60.000 84.000 28.000 56.000 24.000
28.000 16.000 40.000 84.000 0 84.000 36.000
0 30.000
0 27.000
0 33.000
0 30.000
-10.000 34.000
10.000 26.000
1.000*2 kg*€20 € 50.000 / 1.000 units * 1.000 units € 50.000 / 1.000 units * 1.200 units
100 units * (€20 + € 50)
Example (4) Explaining the difference Operating profit Absorption costing Operating profit Variable costing Difference
Units produced Units sold Mutation in units inventory Budgeted fixed manufacturing cost Mutation in € fixed cost in inventory
January February March 30.000 27.000 33.000 30.000 22.000 38.000 0 5.000 -5.000
1.000 1.000 0 50 0
1.000 900 100 50 5.000
1.000 1.100 -100 50 -5.000
April 30.000 30.000 0
May 34.000 14.000 20.000
June 26.000 46.000 -20.000
1.000 1.000 0 50 0
1.200 800 400 50 20.000
800 1.200 -400 50 -20.000
Absorption versus Variable
• Production = Sales => AC = VC • Production > Sales => AC > VC • Production < Sales => AC < VC
Denominator level
• Theoretical maximum capacity • Practical capacity • Normal activity level • Budgeted activity level
Arguments in support of VC
• More useful information for decision making • Effects of inventory changes not in profit • Avoids fixed overheads being capitalized in unsaleable stocks
Arguments in support of AC • Does not understate the importance of fixed costs • Avoids fictitious losses being reported • Fixed overheads are essential for production • Consistency with external reporting
Explaining the existence of absorption costing • Product costing for inventory valuation (financial accounting) • Resistance to change (sociological) • Opportunity costs (economical) • Uncertainty reduction and learning (behavioral)
Costs Cost Pool DLH Cost Pool MH
C
CSP/AVENGE Plant
AMD/DER Plant
Waste Water
Office Services
Training
Plant Analysis
Purchasing
Project Engineering
Canteen
Medical & Clothing
Aux.Buildings
Process Enginering
Personnel
Plant management
Warehouse Botlek
Quality Control
Maintenance
Plant Protection
Traditional costing system
Cost Pool MAT
Activity Based Costing system Warehouse Botlek Activity n
Activity 5
Activity 4
Activity 3
Inspection Incoming material
Triggers
Activity 2
Quality Control
Maintenance
Products
Costdrivers
C
Complexity as cost driver FORD (US) 1965 - 1982
10
Average cost per unit
9 8 7 6 5
0
20
40
60
80
100
Volume per model
120
140
160
ABC in p ractice : t ra ditional c ost in g Overhead costs 58%
Direct costs 42% 11%
24%
32%
7%
17%
9%
DLH MU MH Batch Parts Prod.Orders Sales Orders Site visits Productgroup Plant sustaining
Products
ABC in p ractice Overhead Costs: 58%
Direct Costs 42 % 11%
24%
Activities
7%
16% Activity Cost Pools DLH
MU MH Batch Parts Prod.Orders Sales Orders Site visits Productgroup Plant sustaining
Products
All ocatio n o f o verhead at ABC c orp.
Corporation ABC produces several products. Direct labour and material cost are assigned to the cost objects: products and services. Indirect overhead is allocated to the cost objects by using a tariff. Determination of the tariffs is subject of discussion. There are two groups within the company: one group favours the use of direct labour hours as a basis of allocation. The other group has arguments for using the number of products manufactured. The total overhead cost is as follows: Department Overhead cost Service support $ 1,225,000 Service Delivery (overhead $ 175,000 only) $ 1,400,000 Total The information concerning products and usage of direct labour is as follows: Products Product A Product B Product C Total
quantity 10,000 2,000 50,000 62,000
dir. labour hrs 25,000 10,000 140,000 175,000
Discuss whether the total overhead cost should be allocated to the services on a basis of labour hours or quantity. Determine the overhead cost for Product A, B and C using the allocation base that came out of the discussion as “most favourite”
All ocatio n o f o verhead at ABC c orp.: Solutio n Using quantity as an allocation basis:
Products Product A Product B Product C Total
quantity 10/62*1.400.000 2/62*1.400.000 50/62*1.400.000 62/62*1.400.000
allocated overhead 225,807 45.161 1.129.032 1.400.000
Department Overhead cost Service support $ 1,225,000 Service Delivery (overhead $ 175,000 only) $ 1,400,000 Total The information concerning products and usage of direct labour is as follows: Products Product A Product B Product C Total
quantity 10,000 2,000 50,000 62,000 Products
Using direct labour as an allocation basis:
Product A Product B Product C Total
dir. labour hrs 25,000 10,000 140,000 175,000 direct labour 25/175*1.400.000 10/175*1.400.000 140/175*1.400.000 175/175*1.400.000
allocated overhead 200.000 80.000 1.120.000 1.400.000
Us in g A BC fo r a llo catio n o f o verhead The company determined that it performed four major activities in the Service Support department. These activities, along with their budgeted costs are as follows: Production Support Activities Budgeted costs Order Acquisition $ 428,750 Set-up $ 245,000 Service Control $ 183,750 Materials Management $ 367,500 Total $ 1,225,000 ABC estimated the following activities-base usage quantities for each of its three products:
Products
Quantity
Product A Product B Product C Total
10,000 2,000 50,000 62,000
Dir. labour hours 25,000 10,000 140,000 175,000
Set-ups 80 40 5 125
Acquisiti on activities 80 40 5 125
Inspection s
35 40 0 75
Determine the overhead cost for Product A, B and C using an ABC system.
Material requisitio ns 320 400 30 750
Us in g A BC fo r a ll ocatio n o f o verhead: So lutio n The company determined that it performed four major activities in the Service Support department. These activities, along with their budgeted costs are as follows: Production Support Activities Budgeted costs /125 = 3.430 per acquisition Order Acquisition $ 428,750 /125 = 1.960 per set up Set-up $ 245,000 /75 = 2.450 per inspection Service Control $ 183,750 /750 = 490 per requisition Materials Management $ 367,500 Total $ 1,225,000 ABC estimated the following activities-base usage quantities for each of its three products: Products
Quantity
Product A Product B Product C Total
10,000 2,000 50,000 62,000
Dir. labour hours 25,000 10,000 140,000 175,000
Set-ups 80 40 5 125
Acquisiti on activities 80 40 5 125
Inspection s
35 40 0 75
Determine the overhead cost for Product A, B and C using an ABC system.
Material requisitio ns 320 400 30 750
Us in g A BC fo r a ll ocatio n o f o verhead: So lutio n The company determined that it performed four major activities in the Service Support department. These activities, along with their budgeted costs are as follows: Production Support Activities Budgeted costs /125 = 3.430 per acquisition Order Acquisition $ 428,750 /125 = 1.960 per set up Set-up $ 245,000 /75 = 2.450 per inspection Service Control $ 183,750 /750 = 490 per requisition Materials Management $ 367,500 Total $ 1,225,000 ABC estimated the following activities-base usage quantities for each of its three products: Products
Setups
Acq. act.
Insp .
Product 80 80 35 A 40 40 40 Product 5 5 0 B 125 125 75 Product C Total Determine the overhead
system.
Mat. req.
Overhead allocated on a ABC basis
80*3.430 + 80*1.960 + 35*2.450 + 320*490 40*3.430 + 40*1.960 + 40*2.450 + 400*490 5*3.430 + 5*1.960 + 0*2.450 + 30*490 cost for Product A, B and C using an ABC 125*3.430 + 125*1.960 + 75*2.450 + 750*490 320 400 30 750
All ocatio n o f o verhead at ABC c orp.: Conclusio n Using quantity as an allocation basis:
Products Product A Product B Product C Total
quantity 10/62*1.400.000 2/62*1.400.000 50/62*1.400.000 62/62*1.400.000
Overhead allocated on a ABC basis 80*3.430 + 80*1.960 + 35*2.450 + 320*490 + 25.000 40*3.430 + 40*1.960 + 40*2.450 + 400*490 + 10.000 5*3.430 + 5*1.960 + 0*2.450 + 30*490 + 140.000 125*3.430 + 125*1.960 750*490 + Products + 75*2.450 + direct labour 175.000 Product A 25/175*1.400.000 Using direct Product B 10/175*1.400.000 labour as an Product C 140/175*1.400.000 allocation basis: Total 175/175*1.400.000
allocated overhead 225,807 45.161 1.129.032 1.400.000
allocated overhead 698.750 519.600 181.650 1.400.000
allocated overhead 200.000 80.000 1.120.000 1.400.000
Advantages of ABC
Increased precision for cost allocation to products and customers.
Better calculation of internal and external tariffs
Effective cost control
Reason behind cost allocation
Increased planning opportunities
Simulation options for impact from future changes in assortment and sales mix
Valuation possibilities for process improvement
Disadvantages of ABC
First model is rough overview of that moment
System cost
Only signaling, no improvement
Everything is variable
Action control => updating
Impact on people
Objections against ABC :
ABC not suitable for decision support on short term
No attention for capacity
All cost are variable and therefore controllable
Current production is starting point
Resource consumption = resource spending
Decision support information
Products, Customers, Channels, Markets
Markets
Sales Volume Estimate:
Cus t
om ers
Production Characteristics: Triggers, Cost Drivers
ABC-model
els n n a Ch Resource Consumption: Internal External
Human
Tangible
Non-Tangible
Resource Availability Internal External
Human
Tangible
Non-Tangible
• Last week • Activity-based Costing (Ch. 5) • Absorption costing and Variable costing (Ch.17)
Reasons to allocate costs
External reporting / tax reporting Inventory valuation and income determination
Third-party reimbursements Decision making and control Separate bills? Beamer example
Organizational reasons for cost allocations Cost allocations are a tax system Change the mix of factor inputs: (less of the taxed input, more of the untaxed input)
Compensate for externalities Positive externalities (data in a POS; software add-in on other software products)
Negative externalities (purchasing substandard raw materials; finance department wants to use Macintosh)
Enhance cooperation
Cost allocation methods
1. Simultaneous equation Reciprocal method
2. Specified order of closing Step down allocation
3. Direct method
Joint cost, what’s it all about?
mad cow
processin g
A
processin g
B
Material processin g
Labor Overhead
C Joint Costs
Separable Costs
Split-off point
Allocation methods
• Physical output – kg, meters, liters
• Relative Sales value – Market value at split-off point
• Sales revenue – Selling price x items sold
• Gross margin – Sales revenue less constant gross margin
• Net sales revenue – Estimated sales revenue -/- cost incurred after joint process
Absorption costing Cost Manufacturing cost
Material
Labor
Work in progress stock
Non-manufacturing cost
Overhead
Finished goods stock
Profit & Loss Account
Variable costing Cost Manufacturing cost
Material
Labor
Non-manufacturing cost
Overhead
Variable Overhead
Work in progress stock
Fixed Overhead
Finished goods stock
Profit & Loss Account
Example (1) Units Opening inventory Production Selling Closing inventory
Selling price Material per unit Material unit price Fixed cost Denominator Product cost VC Product cost AC
January February 1.000 1.000 1.000 900 100
100 2 10 50.000 1.000
€ kg € € units
20 70
€/unit €/unit
March 100 1.000 1.100 -
April 1.000 1.000 -
May 1.200 800 400
June 400 800 1.200 -
Example (2) 1.000*€100
Variable costing Sales revenue Cost of Goods Sold Opening stock Variable cost of products manufactured Cost of Goods available for sale Closing stock Variable cost of goods sold Contribution margin Fixed period cost Operating profit
January February 100.000 90.000
April 100.000
May 80.000
June 120.000
0 20.000 20.000 0 20.000 80.000
0 20.000 20.000 2.000 18.000 72.000
2.000 20.000 22.000 0 22.000 88.000
0 20.000 20.000 0 20.000 80.000
0 24.000 24.000 8.000 16.000 64.000
8.000 16.000 24.000 0 24.000 96.000
50.000 30.000
50.000 22.000
50.000 38.000
50.000 30.000
50.000 14.000
50.000 46.000
1.000*2 kg*€20 400 units * € 20 €100.000-/- € 80.000
March 110.000
Example (3) 1.000*€100 € 50.000-/-€ 60.000
Absorption costing Sales revenue Cost of Goods Sold Opening stock Variable cost of products manufactured Fixed cost of products manufactured Cost of Goods available for sale Closing stock Total cost of goods sold Sales profit Adjustment for manufacturing variances Operating profit
January February 100.000 90.000
March 110.000
April 100.000
May 80.000
June 120.000
0 20.000 50.000 70.000 0 70.000 30.000
0 20.000 50.000 70.000 7.000 63.000 27.000
7.000 20.000 50.000 77.000 0 77.000 33.000
0 20.000 50.000 70.000 0 70.000 30.000
0 24.000 60.000 84.000 28.000 56.000 24.000
28.000 16.000 40.000 84.000 0 84.000 36.000
0 30.000
0 27.000
0 33.000
0 30.000
-10.000 34.000
10.000 26.000
1.000*2 kg*€20 € 50.000 / 1.000 units * 1.000 units € 50.000 / 1.000 units * 1.200 units
100 units * (€20 + € 50)
Example (4) Explaining the difference Operating profit Absorption costing Operating profit Variable costing Difference
Units produced Units sold Mutation in units inventory Budgeted fixed manufacturing cost Mutation in € fixed cost in inventory
January February March 30.000 27.000 33.000 30.000 22.000 38.000 0 5.000 -5.000
1.000 1.000 0 50 0
1.000 900 100 50 5.000
1.000 1.100 -100 50 -5.000
April 30.000 30.000 0
May 34.000 14.000 20.000
June 26.000 46.000 -20.000
1.000 1.000 0 50 0
1.200 800 400 50 20.000
800 1.200 -400 50 -20.000
Absorption versus Variable
• Production = Sales => AC = VC • Production > Sales => AC > VC • Production < Sales => AC < VC
Denominator level
• Theoretical maximum capacity • Practical capacity • Normal activity level • Budgeted activity level
Arguments in support of VC
• More useful information for decision making • Effects of inventory changes not in profit • Avoids fixed overheads being capitalized in unsaleable stocks
Arguments in support of AC • Does not understate the importance of fixed costs • Avoids fictitious losses being reported • Fixed overheads are essential for production • Consistency with external reporting
Explaining the existence of absorption costing • Product costing for inventory valuation (financial accounting) • Resistance to change (sociological) • Opportunity costs (economical) • Uncertainty reduction and learning (behavioral)
Costs Cost Pool DLH Cost Pool MH
C
CSP/AVENGE Plant
AMD/DER Plant
Waste Water
Office Services
Training
Plant Analysis
Purchasing
Project Engineering
Canteen
Medical & Clothing
Aux.Buildings
Process Enginering
Personnel
Plant management
Warehouse Botlek
Quality Control
Maintenance
Plant Protection
Traditional costing system
Cost Pool MAT
Activity Based Costing system Warehouse Botlek Activity n
Activity 5
Activity 4
Activity 3
Inspection Incoming material
Triggers
Activity 2
Quality Control
Maintenance
Products
Costdrivers
C
Complexity as cost driver FORD (US) 1965 - 1982
10
Average cost per unit
9 8 7 6 5
0
20
40
60
80
100
Volume per model
120
140
160
ABC in p ractice : t ra ditional c ost in g Overhead costs 58%
Direct costs 42% 11%
24%
32%
7%
17%
9%
DLH MU MH Batch Parts Prod.Orders Sales Orders Site visits Productgroup Plant sustaining
Products
ABC in p ractice Overhead Costs: 58%
Direct Costs 42 % 11%
24%
Activities
7%
16% Activity Cost Pools DLH
MU MH Batch Parts Prod.Orders Sales Orders Site visits Productgroup Plant sustaining
Products
All ocatio n o f o verhead at ABC c orp.
Corporation ABC produces several products. Direct labour and material cost are assigned to the cost objects: products and services. Indirect overhead is allocated to the cost objects by using a tariff. Determination of the tariffs is subject of discussion. There are two groups within the company: one group favours the use of direct labour hours as a basis of allocation. The other group has arguments for using the number of products manufactured. The total overhead cost is as follows: Department Overhead cost Service support $ 1,225,000 Service Delivery (overhead $ 175,000 only) $ 1,400,000 Total The information concerning products and usage of direct labour is as follows: Products Product A Product B Product C Total
quantity 10,000 2,000 50,000 62,000
dir. labour hrs 25,000 10,000 140,000 175,000
Discuss whether the total overhead cost should be allocated to the services on a basis of labour hours or quantity. Determine the overhead cost for Product A, B and C using the allocation base that came out of the discussion as “most favourite”
All ocatio n o f o verhead at ABC c orp.: Solutio n Using quantity as an allocation basis:
Products Product A Product B Product C Total
quantity 10/62*1.400.000 2/62*1.400.000 50/62*1.400.000 62/62*1.400.000
allocated overhead 225,807 45.161 1.129.032 1.400.000
Department Overhead cost Service support $ 1,225,000 Service Delivery (overhead $ 175,000 only) $ 1,400,000 Total The information concerning products and usage of direct labour is as follows: Products Product A Product B Product C Total
quantity 10,000 2,000 50,000 62,000 Products
Using direct labour as an allocation basis:
Product A Product B Product C Total
dir. labour hrs 25,000 10,000 140,000 175,000 direct labour 25/175*1.400.000 10/175*1.400.000 140/175*1.400.000 175/175*1.400.000
allocated overhead 200.000 80.000 1.120.000 1.400.000
Us in g A BC fo r a llo catio n o f o verhead The company determined that it performed four major activities in the Service Support department. These activities, along with their budgeted costs are as follows: Production Support Activities Budgeted costs Order Acquisition $ 428,750 Set-up $ 245,000 Service Control $ 183,750 Materials Management $ 367,500 Total $ 1,225,000 ABC estimated the following activities-base usage quantities for each of its three products:
Products
Quantity
Product A Product B Product C Total
10,000 2,000 50,000 62,000
Dir. labour hours 25,000 10,000 140,000 175,000
Set-ups 80 40 5 125
Acquisiti on activities 80 40 5 125
Inspection s
35 40 0 75
Determine the overhead cost for Product A, B and C using an ABC system.
Material requisitio ns 320 400 30 750
Us in g A BC fo r a ll ocatio n o f o verhead: So lutio n The company determined that it performed four major activities in the Service Support department. These activities, along with their budgeted costs are as follows: Production Support Activities Budgeted costs /125 = 3.430 per acquisition Order Acquisition $ 428,750 /125 = 1.960 per set up Set-up $ 245,000 /75 = 2.450 per inspection Service Control $ 183,750 /750 = 490 per requisition Materials Management $ 367,500 Total $ 1,225,000 ABC estimated the following activities-base usage quantities for each of its three products: Products
Quantity
Product A Product B Product C Total
10,000 2,000 50,000 62,000
Dir. labour hours 25,000 10,000 140,000 175,000
Set-ups 80 40 5 125
Acquisiti on activities 80 40 5 125
Inspection s
35 40 0 75
Determine the overhead cost for Product A, B and C using an ABC system.
Material requisitio ns 320 400 30 750
Us in g A BC fo r a ll ocatio n o f o verhead: So lutio n The company determined that it performed four major activities in the Service Support department. These activities, along with their budgeted costs are as follows: Production Support Activities Budgeted costs /125 = 3.430 per acquisition Order Acquisition $ 428,750 /125 = 1.960 per set up Set-up $ 245,000 /75 = 2.450 per inspection Service Control $ 183,750 /750 = 490 per requisition Materials Management $ 367,500 Total $ 1,225,000 ABC estimated the following activities-base usage quantities for each of its three products: Products
Setups
Acq. act.
Insp .
Product 80 80 35 A 40 40 40 Product 5 5 0 B 125 125 75 Product C Total Determine the overhead
system.
Mat. req.
Overhead allocated on a ABC basis
80*3.430 + 80*1.960 + 35*2.450 + 320*490 40*3.430 + 40*1.960 + 40*2.450 + 400*490 5*3.430 + 5*1.960 + 0*2.450 + 30*490 cost for Product A, B and C using an ABC 125*3.430 + 125*1.960 + 75*2.450 + 750*490 320 400 30 750
All ocatio n o f o verhead at ABC c orp.: Conclusio n Using quantity as an allocation basis:
Products Product A Product B Product C Total
quantity 10/62*1.400.000 2/62*1.400.000 50/62*1.400.000 62/62*1.400.000
Overhead allocated on a ABC basis 80*3.430 + 80*1.960 + 35*2.450 + 320*490 + 25.000 40*3.430 + 40*1.960 + 40*2.450 + 400*490 + 10.000 5*3.430 + 5*1.960 + 0*2.450 + 30*490 + 140.000 125*3.430 + 125*1.960 750*490 + Products + 75*2.450 + direct labour 175.000 Product A 25/175*1.400.000 Using direct Product B 10/175*1.400.000 labour as an Product C 140/175*1.400.000 allocation basis: Total 175/175*1.400.000
allocated overhead 225,807 45.161 1.129.032 1.400.000
allocated overhead 698.750 519.600 181.650 1.400.000
allocated overhead 200.000 80.000 1.120.000 1.400.000
Advantages of ABC
Increased precision for cost allocation to products and customers.
Better calculation of internal and external tariffs
Effective cost control
Reason behind cost allocation
Increased planning opportunities
Simulation options for impact from future changes in assortment and sales mix
Valuation possibilities for process improvement
Disadvantages of ABC
First model is rough overview of that moment
System cost
Only signaling, no improvement
Everything is variable
Action control => updating
Impact on people
Objections against ABC :
ABC not suitable for decision support on short term
No attention for capacity
All cost are variable and therefore controllable
Current production is starting point
Resource consumption = resource spending
Decision support information
Products, Customers, Channels, Markets
Markets
Sales Volume Estimate:
Cus t
om ers
Production Characteristics: Triggers, Cost Drivers
ABC-model
els n n a Ch Resource Consumption: Internal External
Human
Tangible
Non-Tangible
Resource Availability Internal External
Human
Tangible
Non-Tangible
